Welcome to the UBS second quarter 2022 results presentation. The conference must not be recorded for publication or broadcast. You can register for questions at any time by pressing star and one on your telephone. Should you need operator assistance, please press star and zero. At this time, it's my pleasure to hand over to Sarah Mackey, UBS Investor Relations. Please go ahead, madam.
Good morning and welcome, everyone. Before we start, I would like to draw your attention to our cautionary statement slide at the back of today's results presentation. Please also refer to the risk factors in our 2021 annual report, together with disclosures in our SEC filings. On slide two, you can see our agenda for today, and it's now my pleasure to hand over to Ralph Hamers, Group CEO.
Thank you, Sarah. Good morning, everyone. I think going through, you will see that the second quarter has been one of the most challenging periods for investors in the last 10 years. There's not been an asset class that has been immune to the effects of the challenging global macroeconomic environment. In these uncertain times, our clients rely on our powerful ecosystem to navigate markets and invest for the long term. Our headline numbers for the quarter were strong, and the return on CT1 capital was 19%. Those numbers included a gain from the sale of our stake in a joint venture in Japan. This gain aside, our underlying performance reflected a good result in a more challenging environment with lower asset levels, higher volatility and increasing rates.
We're navigating this environment, staying close to our clients, keeping strong risk and credit discipline and a continued focus on cost. Go to the next slide. Basically, you see that the market sell-off accelerated in the second quarter, and that was the case in both equities as well as fixed income. Inflation continues to be high. The war in Ukraine is ongoing. Strict COVID policies are still part of the life in Asia, and all of these have led to further declines in economic growth outlook. With significant drop in markets, our client portfolios lost value, resulting in lower client assets across our franchise. Just to put a couple of numbers to that, the MSCI World Index was down 17%. Investment grade bonds were down 5% on average. High yield bonds were down 12%.
It's no wonder that our private clients stayed on the sidelines this quarter. Net new fee-generating assets were flat for the group, but positive for Asia Pacific, and also positive for Switzerland. Transaction-based revenues with these clients declined by 17%. We also saw $ 12 billion of net outflows in asset management, mostly out of equities. In times of turmoil, liquidity is important. We continue to support our clients through lending with growth, particularly in the Americas. We also focus on deposit offering and optimize our net interest income, where we saw 15% growth across our deposit-taking businesses, and deposits were flat against last year. Client activity was robust on the institutional side, so that's a completely different picture. They remained very active on the back of high volatility.
Global Markets revenues for that reason were up 10% year-on-year. Our Markets business had another good quarter, traded well on increased activity. We benefited from prudent risk management here, from resilience of our technology platform to basically handle the very high equity volumes coming through the system. It's clear that it was a challenging quarter for our clients and for our businesses. In times like these, it's where our clients need us most, and need our advice most as well. That's what we're focused on. Looking at some of the particular performances that we showed, our investment ecosystem continued to allow our clients with unique insights, opportunities to get through this volatility.
This slide five, I am right now, highlights some areas of growth in our ecosystem for the last quarter. We're working with our partners to offer our clients unique investment opportunities. For example, private markets, where we saw net new commitments at $3.9 billion for the quarter or $5 billion on a growth basis. We see also more potential for this category, private markets. Our CIO recommends that clients with a balanced risk profile allocate up to 10% of their portfolios to private markets. At this moment, the average allocation is 3%, so a real upside there.
Our offering for separately managed accounts in the U.S. continues to attract inflows as well. $4 billion this quarter, with overall assets under management in the SMAs currently at $115 billion. That's quite remarkable in terms of performance since we started that in 2020. Sustainable investing is embedded in our purpose and our strategy, as you know, and that's why we report on this as well. We already managed $239 billion of sustainable investments on behalf of our clients. We're more than half way to our $400 billion aspiration for 2025. We need common standards here, to maximize the impact. That's why we're partnering to create these in many different platforms and subscribing to many different methodologies, but also by contributing to the newly developed Swiss Climate Scores.
My Way, as you know, it's a module where we actually deliver digital mandates. We saw inflows of half a billion here. We expanded our product offering in line with our CIO views, including an actively managed commodities module here as well now. That offering to really have your mandates digitally is increasing every quarter as well. Lastly, momentum stayed positive for investment product inflows in Switzerland. These contributed to 8% year-on-year growth in recurring fees. Last quarter, we saw half a billion of positive inflows in investment products, and that's also representing 8% annualized growth. As you can see, we're delivering on our promise to offer clients the right opportunities at the right time. Clearly, when times change, the opportunity has to be changed as well.
We are literally staying very close to our clients to get a sense for what works for them in their investment portfolios, and also then the way we deliver to them in a more digital way. On that note, let me turn to the next slide, where we basically give you an update as to how we are leveraging technology as a differentiator while improving our efficiency. Technology we use in order to improve our user experience, but we also use it for efficiency. I think this slide shows you that we are accelerating the use of technology to our clients so that they can interact with us through their preferred channels in a seamless way. We launched in Switzerland key4 banking, which is a digital-only banking offering.
It's fast, intuitive. It's complete. It's competitively priced. We target the mobile-only retail segment here, which grows at 30% year-over-year. It's a very fast-growing segment that we want to be a player in. Of course, key4 clients also have access to the classic UBS offering for more specific services, and the platform will be a feeder to those. In Asia Pacific, our Circle One ecosystem is now live. The app connects clients to experts, thought leaders, actionable trade ideas through engaging content and video. Basically an app with very snackable content, where people can watch videos, get educated on specific trends, investment opportunities, and as a next step, also execute on those. So far, also in Circle One, the user base is growing fast.
With time, we will add new features, thanks to the agile development that we actually apply here. We will have continuous feedback from our clients to ensure that we stay ahead in our developments, both in terms of the offering as well as the user experience. As an example, in the next phase, clients will be able to connect with each other and to experts in interest groups that focus on very specific topics. That could be investing, could be wealth planning, family advisory, sustainability, art, philanthropy, and much more. Our strategy to transform how we manage change and develop technology is also on track. You can see that also in this slide, where we are executing our cloud strategy to gain further flexibility, to gain further efficiency as well.
We now have around 60% of our computing power fully delivered on cloud, half on the public cloud, half on the private cloud. We're transforming our workforce to agile way of working. We're currently having 13,000 employees working that way. This is the second wave we're in. Within these teams now, we see that technology teams are consisting of 65% of engineers. So basically, we're changing the composition in terms of non-engineers to engineers, and that has changed by 10 percentage points. So a real productivity increase coming through if you compare it to the pre-agile composition of our technology teams. We developed AI technology to help identify and remediate service interruptions in over 500 applications as well, and we've decommissioned around 300 applications this year to simplify our tech estate.
These are just a couple of proof points how we're making technology a differentiator, both in user experience as well as in how we manage technology flexibly and efficiently. Turning to slide seven, I'd like to give you a couple of examples of how we are executing our strategy and capabilities in the regions, because that's where our strategy comes together. We're organized in divisions, but where the rubber hits the road is truly with the clients, and the clients are in the regions. Let's talk about the Americas here. The recent dollar interest-rate hikes are a primary focus of how we manage our deposit offering. We expanded our deposit offering for that reason. We also saw a continued demand for loans.
As a result of the combination, our net interest income was up 37%, versus last year. In Switzerland, we're building a strong foundation on the technology side, which contributes to being named best bank in Switzerland for the eighth time since 2012. In EMEA, as you know, our strategy is very much to improve profitability with a very selective investments in our areas of focus, more towards the entrepreneurial wealth creation, families with large companies, and the build-out of our banking proposition to that segment. This strategy we see is delivering results already, specifically on the cost side, where costs were down 9% against last year.
Lastly, Asia-Pacific, and that's also as a result of our continued focus and discussion with clients to show them our mandate offerings. We saw $ 3.3 billion of net new fee-generating assets in the quarter alone. Overall, you see basically, given the fact that we're talking about four regions, with a selective update here, you see that region diversification is really a competitive advantage for us. It's a source for stability, it's a source for resilience, and I think this quarter proved it once again. Now to a summary on the numbers, and then Sarah will take you through more specific numbers as well, and thereafter we'll have the Q&A. Just ending on the diversification, both regionally and by business.
You see the resilience in our financials here on this slide. Our revenues have started to benefit from higher interest rates, and that helped offset the lower recurring fees and the lower client activity levels on the private side. Again, on the institutional side, we saw quite the opposite with good results in global markets. Meanwhile, we remained very disciplined on cost as we execute our efficiency plans. Operating expenses were down a percent compared to last year. Together with the gain on the sale of the joint venture in Japan, which we already updated you on, this resulted in $ 2.1 billion in net profit, 18.9% return on CT1, and a 70.6% cost-income ratio, all within target levels.
In the second quarter, we bought back another $1.6 billion of shares while maintaining capital ratios well above the requirements. We are well on our own track to buy back around $5 billion of shares by the end of the year. Now heading into the second half of the year, we're well-positioned for an operating environment which remains uncertain, certainly the next couple of months. But we're very well-positioned to work through that. That's thanks to our strategy, thanks to our business model that values global diversification, operational and financial resilience, strict risk management, capital efficiency, and a strong capital base. Strong reported results, and I think this is also the moment for me to hand over to Sarah Youngwood, our CFO, and she will take you through the underlying performance. Sarah, the floor is yours.
Thank you, Ralph. Good morning, everyone. It is a great pleasure to be here today. As you heard from Ralph, we reported a strong set of results during this period of uncertainty. We partnered with our clients when they needed us most and delivered a good underlying performance. On slide 10, our net profit in the quarter was $2.1 billion, up 5% year-on-year with a return on CET1 capital of 19%, a return on tangible equity of 16%, and a cost-income ratio of 71%. We have a balance sheet for all seasons and are on track to meet our return on CET1 capital and cost-income ratio targets for the full year 2022. The year-on-year comparison on the slide highlights a number of items that are not representative of our underlying performance.
First of all, in revenues in the first bar, $810 million from net gain on sales. This included the $848 million sale of our real estate JV in Japan and the sale of our minority stake in Fondcenter a year ago. This was partially offset by $147 million real estate-related revenue impacts, including a loss of $46 million this quarter. Moving to expense, we had $158 million higher litigation, including $221 million this quarter net. FX movements were over $200 million each for revenue and expense and netted to a headwind of around $50 million. Now let me go through the underlying performance.
The revenue story reflected the impact of market levels on recurring and transaction fees, as well as lower global banking revenues, mostly offset by higher combined net interest income in GWM and P&C, and continued strength in global markets. The net credit loss was $7 million compared to an $80 million release last year. This is a reflection of our existing level of reserves and the quality of our balance sheet. For example, 94% of our loans are collateralized, and for those, the average LTV is less than 55%. Operating expense was down 1% as variable compensation was down around $130 million, offset by increases in T&E and IT. We remain focused on our cost discipline while absorbing increasing inflationary pressures and investing for the long term. Now let's turn to our regions on page 11 .
Ralph Hamers walked you through the strength of our regions, and I will show you the diversification in our numbers. On the revenue side, Americas represented 40% of our business, followed by Switzerland at 23%, EMEA at 20%, and APAC at 17%. On the right, given the strong efficiencies of Switzerland and APAC and the level of investments in the U.S., on a pre-tax basis ex litigation, Switzerland represented 1/3 of our business, followed by Americas at 23%, APAC at 22%, and EMEA at 21%. Let's move to our businesses on page 12, starting with GWM. GWM profit before tax in the quarter was $1.2 billion, down 2% year-over-year excluding litigation.
Revenues were 2% lower, with top line increases in Americas and Switzerland driven by NII, and decreases in APAC and EMEA due to lower market levels and muted client activity. NII overall was up 24% year-on-year and 11% sequentially, with deposit volumes up 1% year-on-year, including 19% up in Americas and down 6% Q-on-Q. I would also note that the firm's deposits were flat year-on-year and down 5% Q-on-Q. We were able to increase our deposit margins in GWM by over 60% versus a year ago, while providing our clients with very competitive and stable pricing in savings rates, which they appreciated. While we've stayed close to our clients, macro and geopolitical uncertainty and lower asset pricing have kept them on the sidelines. As we enter the third quarter, the sentiment remains subdued.
The operating expense ex litigation and FX was flat versus last year. Net new fee-generating assets were $0.4 billion in the quarter, with positive flows into SMAs, alternatives, self-directed mandates, and UBS My Way, which more than offset pressure in discretionary mandates and investment funds. We also continued to see high demand in the private market space where, as Ralph already mentioned, we saw $3.9 billion of net new commitments. Despite the environment, we also continued to see strong flows in APAC, where net new fee-generating assets were over $3 billion in the second quarter. These inflows, together with $1 billion inflows in Switzerland, more than offset outflows in the Americas and EMEA. For the past 12 months, we generated $65 billion net new fee-generating assets, which represents around a 5% growth.
For the first three weeks of July, we saw positive flows in the Americas and across GWM. Net new lending into Q was $0.9 billion, with continued strong growth in Americas, especially from asset-based lending and mortgages. This was partially offset by continued deleveraging in APAC and to a lesser extent in EMEA. Moving on to asset management on page 13. We had a profit before tax of $959 million, which includes the $848 million net gain I referred to. This quarter's JV sale represents the closing chapter of a successful 20-year partnership, during which we were able to build and grow our joint venture to become one of the largest real estate management companies in Japan. However, given the level of equity and bond markets, the underlying performance of the business was affected.
We saw $12 billion of net outflows, mostly in equities, and both our management and performance fees were down. Operating expense was up 1%. The IB on page 14 had a profit before tax of $410 million, delivering a return on attributed equity of 15% excluding litigation. Global markets revenue increased by 10% or 4% underlying. The increase was primarily driven by our rates and FX businesses, as well as record 2Q in financing, which was driven by increases in equity financing and clearing. Global banking revenues were down 57% to $377 million, with the global fee pool down by 51% as both advisory and capital markets were down. We managed our risk well, and included in the numbers, we had net mark-to-market losses of around $70 million across LCM, corporate loans, and CRE.
There is no development in July that has meaningfully affected our markets, but we haven't seen a change in market conditions. Operating expense was down 1% ex litigation and FX on lower variable compensation, offsetting higher technology expenses and inflationary pressure on salaries. On page 15, moving to P&C, the leading bank in Switzerland. P&C profit before tax was CHF 398 million, with strong business momentum and good cost control. The year-on-year comparison was impacted by credit loss releases and non-recurring real estate gains in the second quarter of 2021. Total revenues were up 2% year-on-year, with increases across the board in NII, recurring, and transaction-based income. Net interest income rose by 5%, mainly driven by deposit revenues due to higher deposit margins as a result of rising interest rates as well as deposit management actions.
Transaction-based income increased 4% on higher revenues from credit card and FX transactions, reflecting an increase in travel spending by our clients. Recurring net fee income was up 8%, including higher revenues from $ 2.4 billion of net new investment product inflows over the past 12 months. For the quarter, personal banking net new investment product flows were $ 0.5 billion, an annualized growth rate of 8%. The credit loss expense was $ 33 million compared with $42 million credit loss release a year ago. Cost ex litigation was down 1% on a lower personnel expense. This was largely offset by increased investments in technology as we continue to execute on digital strategy. On the last slide, page 16, we maintained a strong capital position this quarter, well above our guidance, while continuing to distribute capital according to our plans.
As of the end of June, our CET1 capital ratio was 14.2%, and our CET1 leverage ratio was 4.37%. The sequential CET1 capital increase includes a $ 0.3 billion post-tax benefits in connection with the reclassification of an HQLA portfolio from fair value through OCI to amortized cost. As you recall, we announced in our February strategic update our growth plans in banking and investment management in the U.S., including the Wealthfront transaction and organic growth initiatives. This transformative change in strategy requires the reclassification of this portfolio. Turning to the CET1 capital ratio walk and starting at 14.3% at the end of last quarter.
Net profit contributed 70 basis points, offset by capital returns to our shareholders of 60 basis points and 20 basis points from the increase in RWA from $312 billion to $316 billion. In addition to that, we had a 10 basis point impact of FX offset by the reclassification I just mentioned. Our capital return story remains strong. In the first half of the year, we have repurchased $3.3 billion. As of last Friday, the number was $3.7 billion, of which $1.6 billion took place in the second quarter.
With a payout ratio of 97% for the first half of the year, including dividend accruals and buybacks, we expect to buy back around $5 billion of shares during 2022 as planned. To conclude, our capital light and diversified business model, proactive risk management and exposure to rising interest rates contributed to the quarter's good performance. We continue to stay close to our clients and execute our long-term strategy while remaining disciplined on costs to deliver sustainable growth. With that, let's open up for questions.
We will now begin the question and answer session for analysts and investors. Participants are requested to use only handset while asking a question. We kindly ask you to have maximum of two questions at this time. Anyone who has a question may press star and one now. The first question is from Magdalena Stoklosa from Morgan Stanley. Please go ahead.
Thank you very much and good morning. I've got two questions. One regarding the NII trajectory and sensitivity, and another one on the net new fee generation inflows into wealth and what you're thinking about it going forward. On the NII, your sensitivity kind of changed slightly versus the last time you've published this. We had a kind of slightly less US dollar sensitivity. But of course, the biggest change is actually coming from Swiss franc. Of course, you know, kind of unsurprisingly so, given the rate hike and of course a kind of very different rate trajectory in Switzerland, from here.
Could you kind of run us through how this is gonna pan out on a more of a quarterly basis? Because of course, your initial sensitivity to Swiss franc interest rates is slightly negative given the central bank liquidity and also your deposit charging practice. How and of course then it kind of goes up as the rates move above zero. Could you give us a sense how you think that's going to pan out and also on US dollar? Is it really a kind of question of effectively having spent some of that you know your NII has already increased by the 24% in GWM in particular. That's on NII.
On the inflows, of course you've got, I was kind of very pleased to see those inflows in APAC. Could you give us a sense where do they go, kind of product wise? Again, your view on flows may be a little bit going forward. I know you've mentioned Americas in July, but just slightly further out, what's the pipeline looking like? Thank you.
Okay. Thank you, Magdalena. On the flows and NII, Sarah will take the one on NII because you're asking for quite some details there. Let her work on that a bit before we give the answer. On net new fee-generating assets, yeah, we're very happy to see that we after, you know, working with our clients, looking at the opportunities they had, and given the fact that, you know, in Asia Pacific, you saw already a kind of a muted behavior around with our clients in terms of the transactions over the last three quarters, actually almost for a year now. That, you know, we have been able to secure them to look at mandates business.
That's what you see coming through in the net new fee-generating assets of $3.3 billion in Asia Pacific. That is something that we're very happy about. We also saw $1.1 billion of inflows net new fee-generating assets, for example, here in Switzerland as well. We saw some higher outflows in the U.S. Now, specifically as to what we expect going forward, who knows the future, certainly in these uncertain times. Having said that, we are very focused on supporting our customers through this mandate and therefore net new fee-generating assets is a very good alternative with our CIO strategies there. They are attractive. We are continuing to hire, for example, also financial advisors in the U.S.
That should also give further rise of increases in net new fee-generating assets. The first weeks of the third quarter basically look broadly positive across the whole franchise. That's what I can tell you. I can't go further, much further as to where it will go. You know, we're really working hard on this. Managed business is what we do. Staying close to the clients, you know, recruiting financial advisors also in the U.S., making sure that the managed business continues to grow there as well. At least in the first three weeks of this new quarter, we saw broadly positive flows. Sarah?
Yes. On NII, I think what Magdalena Stoklosa is saying, and it's not surprising, is that in the U.S., because we have already seen some of the changes, the sensitivity decreases, and that is, I would say, mathematically always to happen. Of course, we had the events in Switzerland which were not expected as of last quarter and that come in. In terms of like, how that translates for us, the first thing that I would say is that the guidance that we gave last quarter stands on a static balance sheet basis as we gave it last quarter.
If you want to dig a little bit into what has happened, you heard the excellent numbers that I mentioned, the 24% year-on-year up in GWM, sequentially 11%, the increase in margin by 60%. The performance was strong. Our actual betas were lower than our modeled betas. That was on the U.S. In Switzerland, what we did is what we should have done, which is, we of course translated to the clients as needed on the changes in the rates that we experienced. We have always said that being close to zero or at zero is not the best place for us on the rate curve in Switzerland. The good news though is that, at least the expectation today, is that we would stay probably a very little time in that zone and would be able to benefit from the tailwind once we are into the positive territories.
We're likely to see, kind of, probably a couple of quarters of more of a stable, alternatively even, kind of headwinds to the NII before probably, let's just say, mid-next year, that kind of sensitivity coming through, maybe even the beginning, depending where SNB actually ends up.
I don't think like major headwinds, honestly. I'm not sure where that comes from. If that has to do with the fact that, you know, the SNB is still at - 25 basis points, and that is a situation where, on one side, on the loan side, you know, they're floored. Resident deposit side, we're at -25 basis points, so we can't charge more. Clearly, you know, the way we have done our pricing there, it was not at a full -75 basis points anyway, right? Because we very much look at the client side there. From that perspective, if the SNB does not further hike, yeah, it may be a bit of a downtick, but I wouldn't talk about headwinds there, honestly. Yeah.
Okay. Yes. Thank you very much for that. Thank you.
The next question is from Chris Hallam from Goldman Sachs. Please go ahead.
Yeah. Good morning, everybody. Just two questions. Firstly, just to follow up on this NII point, I guess to sort of put it into numbers, the net interest margin in Global Wealth Management was around 220 bip in Q2. It's up around 40 bip versus this time last year. Do you have a sense for how much more that margin could expand by both sort of over the next couple of years? That would be my first question. Then second, you mentioned client sentiment remains subdued in Q3 so far, and I just wondered if there's any regional nuances within that overall picture or whether that's a fairly consistent global backdrop.
As always, if you look at how clients have currently allocated their investments, we have not seen a massive change away from cash, also not into cash. Last year was like 22% in cash, now it's like 23% in cash. That's not where we see it, really. If you look at investor sentiment, we do see a decrease of that sentiment, with Asia being more optimistic and across the different regions. That's a little bit the sentiment around it. In terms of the flows, I just indicated that in the first three weeks of the third quarter, we saw broadly positive flows coming through. Sarah?
In terms of the NII, we are not gonna guide further on the precision of what the deposit margin is gonna be, but there certainly could be additional upside.
Okay. Thanks very much.
The next question is from Kian Abouhossein from JPMorgan. Please go ahead.
Yeah. Good morning, Ralph. Good to have you at UBS, Sarah. Two questions. First of all, if I look at the numbers, the thing that strikes me today is that you're underperforming U.S. peers in all IB areas, and you're underperforming in US Wealth Management, Morgan Stanley, which is comparable. Clearly, I don't wanna make just about the second quarter in terms of future market share movements, but just trying to understand from your perspective, because I'm sure in the executive board you discuss it, why you think you underperformed in equities, fixed income, IBD, US Wealth, and I would even say Europe Wealth against Julius Baer yesterday. Second question is regarding, again, coming back to wealth management, Asia deleveraging, is that stopping or is the second derivative changing?
Can you talk a little bit more about, again, advisors in that area as well, considering your advisors are still declining? If I may take it slightly further, clearly the new change in the structure of wealth management in terms of management itself, with Iqbal taking a bigger role, just wondering how that is changing things within wealth.
Okay. Thank you, Kian. I'll answer and then Sarah can fill in on it. I'll start with the second one. The deleveraging in Asia Pacific last quarter, we saw a continued deleveraging of -$3.3 billion in Asia Pacific in net new loans. Who knows? Honestly. It really depends on how things develop, but I do expect that towards the end of the third quarter and certainly the fourth quarter, that there will be much more optimistic news coming from China and with that, Asia.
I do expect that on the back of a confirmation of the political leadership in China, with and with that, the confirmation of the economic policies in China, and with that also, further lifting of restrictions around COVID that, you know, the whole Asia area will basically get a bit of an uplift, and will pick things up. With that, I do expect also then the deleveraging to stop at a certain moment in time. Now, will it continue at this moment in time? We don't have numbers, so I can't update you as to what is happening right now. You saw the -3.3% for the quarter.
With the decreasing market levels, you can expect them through, you know, the margins also to have to repay some of our loans. I think that's kind of the direct relationship that you can expect. And that is in Asia, it's a lot of Lombard loans business that we have there. That's the overall picture there. Specifically as to the change in leadership, there is not really a kind of a big change here, honestly, from that perspective. Tom has done a remarkable job at turning the U.S. into profitability, very much focused on further decreasing the cost-income ratio, improving the scale that we have in the U.S., co-developing the strategy as to what are the next steps in the U.S.
A remarkable performance there. You know, after almost 40 years with UBS, it's only natural for him to look at, okay, what's next? The way we are now looking at organizing there is that we are appointing Naureen Hassan as an executive team member, reporting to me for the region, and very much responsible for the regional execution of the plans, also for wealth management, but also for IB, also for Asset Management. Iqbal Khan taking the global strategic role for wealth management. That's the way you can read it.
Basically, all of the divisions have a sole lead structure IB with Rob Karofsky, asset management with Suni Harford and wealth management with Iqbal Khan and then Sabine on the P&C side, but that's local. Complemented with strong regional leadership. That's the way we go about it, because we have an ambitious plan for the U.S. We believe in those plans and the execution of those plans, certainly also from a digital perspective, not only for the digital proposition, but also to support the financial advisors is crucial. Naureen Hassan brings that experience, and together with Iqbal Khan, I think they will be a good team to focus on the U.S. market. With that, Sarah, maybe some more color to the U.S. performance, the relative performance.
Yes. Maybe I'll start with a general comment on the IB performance and how the mix has affected it. I think that basically when you're looking at our performance in the second quarter, we were a reflection of our mix in the same way we were in the first quarter. In the first quarter, we had tremendous outperformance in a market that was very much towards the solutions and towards equities. Here we saw the reverse. We have our strengths in APAC was not particularly accretive in terms of the contributions. The U.S. houses were very strong in the U.S. for flow business.
As you know, Kian, we have a very capital-efficient model, where we are focused on solutions that are additive to the ecosystem and less so on the flow business, which we view as less capital efficient. We did not participate in that fee pool. We participated to a degree, but less so on a mix-adjusted basis. We did see FX and rates being strong for us. Financing was a good story in the U.S. and across the world, as well as clearing.
If you do all the adjustments, and we do them based on the public information, that appears as they reported, in markets, we actually end up, if you adjust for mix, if you adjust for, the products as well as the regions, and then, you end up within the range of the performance. If you account for the fact that we are less on the flow side, that really explains the whole story. In terms of U.S. overall, I think that when you look at the situation, you've got a contribution actually that ended up being 40% of the revenue of the firm.
I would certainly not say that is not noticeable, with, of course, the strong contribution from NII and from the banking business that is being built and that is already contributing strongly in the U.S. We got outflows that were very much tax related, and so $10 billion because UBS is positioned at the high end of the wealth spectrum, $10 billion versus $7 billion last year. I would say it's not surprising, but it certainly contributes. You have to catch back from that to get into the next phases. We did see the SMAs and the privates being offset. As I mentioned in my prepared remarks, we're seeing positive flows in the U.S. in particular, but we're seeing positive all around in the three weeks of July. In June, we also had seen positive outflows in the U.S., so that's another proof point of the fact that April and May were very much tax affected.
Thank you.
The next question is from Benjamin Goy from Deutsche Bank. Please go ahead.
Good morning. One question actually on cost and cost control in GWM. I think from a revenue perspective, it's actually improving, meaning NII is going up, which I think is limited compensation linked to that, and then the revenues went down. I was just wondering how you see that playing out. Can you really push that through, or is there just investment needs in the business that keep costs rather high? Secondly, I was wondering, I mean, you sold Austria and you're in the process of selling Spain. Maybe you can comment on particularly European consolidation and your own business in light of, so to say, the new market outlook from here. Thank you very much.
Sure. Thank you, Benjamin. Could you repeat your first question because at the beginning, we lost a bit of the connection there. I just want to be sure I get it right.
Yeah, sure. I was saying net interest income is going up, and there's typically very limited compensation linked to that. On the other hand, fees are falling, where it's more an impact on the advisor compensation. I was wondering how that plays out going forward. Also, when you think about investment needs and so the competitive pressures. Thank you very much.
Okay. Yeah, thank you. On the first one, it is a bit of what it is, Benjamin. It's the financial advisors are clearly I mean, they are so close to our clients that they really act in their interest. Where there is no investments coming through, that's what it is. They would certainly advise also on cash management deposits, money markets as well. You know, they have had very good years and now in this quarter, you know, and the fact that the interest income is basically produced at a lower cost-income ratio, that is, for us, looked upon from a corporate perspective.
They're really advising in the best interests of our, of their clients. Not necessarily then per se, looking at, for the quarter, what their revenues would be. The financial advisor distribution model is very important to us. As you know, we have been working on the productivity improvement over the last three years and have done really well on that under Tom's leadership. That is what is important. The count of financial advisors, which you mentioned, is one that we certainly look at. Since three years, you know, the count has gone down 6%, whereas the profitability of the franchise has increased by 60%.
Moving the financial advisors to the higher wealth band, supporting them in their productivity, and just specifically, and now I get to your point, ensuring that we invest so that they can be very efficient and advise their clients, that they can actually have the products on screen. Well, they have that, but in an even better fashion, that is important. The whole wealth management, the WM MAP project, where we invest in a digital tooling for the financial advisor, is one that is very important, that we are committed to, because the distribution channel is core to our offering in the U.S.
Basically, we had two new releases just in the last couple of months, and the pickup of those new releases of our digital support is at 94% with our financial advisors. It shows that we're doing the right thing for them to be more effective with their clients. On Europe, the way I look at Europe, and I don't think that has really changed. If anything, it's probably worsened. Europe is not necessarily an area where we expect major wealth creation in comparison to Asia and the U.S.
That's why we have looked at Europe strategically, and we have basically looked at the plan where we can actually support our European businesses from the investment banking side with the right coverage to support the coverage of basically the family businesses where the wealth creation will be the entrepreneurs where the wealth creation will be. That is basically a model that we don't necessarily need a local activity for in every country. Basically the discussion around where do you want to be then active locally on top of that offering really depends on whether you can actually generate the scale then locally. That's how we came to the decisions to sell Austria and Spain.
The other countries we actually feel are large enough with sufficient scale and growth opportunities for us to continue our activities. I think that I'm not the only one disappointed in the progress of creating a real banking union where in fact you still need to build so much locally in order to be a local player. That scale is an important factor. Therefore, you know, it really depends on the size of the market for us, whether we continue to also do our local offering there.
Thanks for the comprehensive answer.
The next question is from Tom Hallett from KBW. Please go ahead.
Hi, guys. I have a couple questions, please. Firstly, on the investment bank, I just wanted to know if there was any LBO hits booked in there, or is that something we should expect in 3Q instead? Secondly, you know, I'd say broadly, you've demonstrated some good cost flexibility in the quarter, but I guess the concern now is how much flex there is from here should obviously, you know, conditions fail to normalize. What additional levers can be pulled, and what are you currently seeing in terms of cost pressure points? Thank you.
Yeah, Tom. On the first one, Sarah will do. The second one, I'll answer you right now. For us, it is important to look at the cost-income ratio. That's what we have kind of targeted with you. We are fairly confident to stay within the range of the cost-income ratio, given our current model and our current plans. Having said that, we do expect that we do see further flex if there is, if it is necessary. We do focus on cost. We're looking at cost as we speak. We will not sacrifice the investments in the growth plans that we have unless those growth plans really are delayed in terms of the opportunity that they show.
There is some flex there. If we truly feel that some of the growth may not come, then clearly we could work on that side. We have a savings plan in place, as you know, which is the $1 billion plan that we announced when we announced the strategy, and we are fully on track to deliver the $400 million out of the savings plan this year. That's an important factor as well to keep our costs under control. In the end, there is also such a thing that if the revenues are down, you know, the bonus accrual will also be down, and that's another factor that is important to manage our cost. With that, Sarah, first question.
Yeah. In terms of, I put on my prepared remark that we had $70 million net mark-to-market in LCM corporate loans and corporate real estate. So I think that what you asked for was included in that number. I've also added that there was no development in July that has meaningfully affected our marks. When you think about that in the context of our market share in B2, B3, this is actually an outcome that is less than what you would have expected based on our market share of B2, B3. We believe that we have managed our risks well.
Okay, thank you. Ralph, just quick follow-up. What are the main cost pressure points you're seeing at the moment, maybe regionally, you know, back office? What are the kind of key points there, pressure points?
Well, I mean, you know that the largest part of our cost base is personnel costs. That's a combination of inflation as well as still in some areas a real tension in the labor markets in the geographies in which we're active. That's where you see upward pressure on salaries still. Depending on how things unfold, whether if the inflation becomes stubborn, so to say, then that in the end will come through also in general salaries as well, also in the areas where there will be less of a labor market tension. That's where you see most of the upward pressure coming through.
There's not a lot we can do about that other than further digitalizing our processes so that we can basically manage the count. What we are really working hard on and indicated in my presentation as well is the engineer count as percentage of the total of technology spent. With that, we create a lot of productivity, which currently we use to continue to invest, but we could also translate that into a different way. So those are a couple of areas where we see pressure up and productivity gains. That's how we manage the mix a bit.
Okay, perfect. Thank you.
The next question is from Flora Bocahut from Jefferies. Please go ahead.
Yes, good morning. The first question I'd like to ask you is on the buyback plan. You know, you confirmed today that you seek to the $5 billion buyback for this year, but at this pace, you will probably be finished with this buyback by the time you publish Q3 results. Just for understanding here what we should expect, is it possible that you could decide reloading the buyback as early as Q3 results, or this is something you rule out from today's standpoint already and not to be considered before full year results are published in February next year?
The second question is going back to the NII. I heard, you know, all the comments you made earlier on this call on the U.S., on the Swiss exposure. You used to provide a guidance, at least you did in the previous quarter on the additional NII we should expect for this year. Does that guidance, you know, the $1 billion additional year-on-year NII for this year, does that guidance still hold? Thank you.
As you already had in your question, we confirmed to buyback around $5 billion of shares, and we're well on our way there. That's what we will do. Further capital distributions to our shareholders beyond 2022, we will basically update the market on it with our fourth quarter results. It will be a mix of progressive dividend and share buybacks. But we will see at that moment in time. For now, we are focusing on the share buyback program that we have, which is around $5 billion repurchase of shares. NII, Sarah?
Yeah. I already, in an answer to a previous question, reconfirmed that we're standing by the guidance as it was given in the last quarter on the static balance sheet.
Thank you.
The next question is from Stefan Stalmann from Autonomous Research. Please go ahead.
Yes. Good morning. I have two questions, please. The first one on deposits. Your deposit balance in Global Wealth Management has come down quite a bit, 6% during the quarter, quite similar to what we have seen at U.S. peers. Do you have any visibility on where these deposits have actually gone? And do you expect more deposit outflows going forward? And can you actually say whether clients have moved out of deposits into, let's say, money market funds or other disintermediated forms of savings? And if that's the case, why have they not gone into asset management products, which I guess if you look at the flows has probably not happened.
The second question on liquidity, please. You're facing now changing and probably higher liquidity requirements under Swiss rules. I've seen that you say that the impact on these requirements is still quite uncertain. Could you maybe give us an early guidance on whether you see any impact of these new rules on balance sheet or P&L for you? Thank you.
Yeah, Stefan, on the second one, I can be short. Basically, the audience is finalized just three weeks ago, four weeks ago. We are waiting for further guidance from FINMA on that one. Before we have that, we can't, you know, update anyone. We really want to wait for that guidance before we give further updates. Sarah, on the first one on the deposits. Yeah.
On the deposit, as you noted a little bit in your question, yes, there was some flows into money market. There was some flows into T-bill Treasuries, as people basically took a little bit of duration, and usually very high quality, especially government assets. We would say that given the strength of our savings products, we were able to retain a good amount because when you mentioned a similar performance to the U.S. peers, but we actually don't have the banking, checking products to the extent that they have it. It's definitely something that is important in our plans to grow. Having accomplished a similar percentage, given we didn't have that, I think is a good performance. In terms of like where specifically we saw the outflows going, it's not that easy to track because some of it went directly to tax. You can't actually then see where it comes back.
Right. Thank you very much.
The next question is from Piers Brown from HSBC. Please go ahead.
Yeah, good morning. Just a few questions. One was on the EMEA net new money flows, the outflows of $ 500,000 . I'm just looking at that number, and I'm linking it to the disclosure you give for assets held by Russian residents, which I think is halved in the quarter. Just if there's any linkage between those two movements. The second question is just on the CT1 movement, whether there's been any significant OCI impact this quarter. Thanks.
OCI? Sarah?
What you would see in OCI is simply some of the currency impact that is running through the CET1, and then that's $600 million, and then it is offset by the RWA, $5 billion down. The net of all of that is the 10 basis points headwind that I mentioned, but not much. You have the reclassification that I mentioned, which is actually going the opposite direction and offsets it.
Yeah, Piers, on your question in terms of the decrease in net new fee-generating assets for EMEA. While we don't go into further detail about this, but yeah, part of that is certainly also to do with Russian clients.
Okay, thanks. Could I just come back on the OCI question? I think last quarter you gave a figure of $9 billion for the liquidity book within the U.S. banking subsidiary, which is mainly treasuries and MBS. I think that was the primary driver of the OCI move you had last quarter. Is that book changed in composition or size in any way? Is that the area that the reclassification is coming from?
Yeah, that's exactly right. It was $9 billion. Of that $7 billion is the reclassification that I talked about. What is left is much shorter duration and still extraordinarily high quality being AA and above.
Yep. Okay, perfect. Thank you very much.
Well spotted.
The next question is from Andrew Coombs from Citi. Please go ahead.
Good morning. One question on the targets and then a follow-up on cost flex, please. If you look at the numbers you published today, 18.9% return on quarter one, and then a 70.6% cost-income, but obviously benefits from the $ 810 million one-off gain on the Mitsubishi JV. If you try and adjust for that, I think you're looking at about, you know, an 11.5% return on quarter one for the quarter and about a 75% cost-income ratio. What gives you the confidence that you can, certainly beyond this year, still achieve the 15%-18% and the target cost-income 70%-73% as well?
Just anything that you can do from an output perspective, assuming that markets don't recover. Then the broader questions coming back to the point on cost flex. We've obviously seen a big step down in market levels, and yet when we look at your cost flex litigation and FX, they're down 1%, flat or up 1% in every division. There doesn't seem to be a big step change in the costs to accommodate the move down in market levels and accordingly, what it means for your revenue. Anything you could add on cost flex above and beyond what you've already said, please. Thank you.
Yeah. Andrew, on the second one, I can be clear. I mean, as you know, we continue to invest, right? We have plans, we have a strategy, we're investing in our strategy. You see some of the cost categories actually being related to revenues. There is also categories that basically as we have also updated you on are areas of investment. We are not sacrificing the investments in those growth areas. You know, if things get worse, we have different levers to pull, and then we will pull those levers. I do think there is sufficient flex. Having said that, we are comfortable with the guidance around staying within the cost-income range, as well as the return range, and Sarah will update you there.
Yeah. So I really didn't follow at all your math because when I do my math, this is what I do. JV sale, $848 million. Real estate gains is $46 million. The litigation you would say is $221 million net. Accounting asymmetries is $214 million. You certainly are taking out a little bit, but you get to a number that is in the mid-teens, not at all the low teens.
Yeah, I think you could just.
I'll follow up with you.
No, I think you could just be counting asymmetries as well, which I hadn't, which explains the delta. I guess the follow-on question would be, how long does it take today for those to reverse?
Well, by definition of them being asymmetries, we don't have like a great way to project them. We do have scenarios. They are sensitive to the shape of the curve, the basis between different currencies and the basis between swaps and LIBOR. You'd have to know what's gonna happen to all of those to give you an estimate. In general, over a long period of time, they should revert back to zero, which is why I suggested that you could consider them.
Okay. Thank you. Bye.
The next question is from Anke Reingen from Royal Bank of Canada. Please go ahead.
Yeah, thank you very much. I just have two follow-up questions. The first is on the cost. I just wanted to confirm that your previous guidance about the 2% ex variable comp and FX and litigation still stands, or you think the inflation pressure is too high? I guess, I mean, I guess you suppose you said if it get worse, you will leave us, I guess that refers to that one as well. Then just on the leveraged finance and the mark to markets, the $70 million you took in the quarter, I guess that's also relative to the $ 700 million you disclose in your report about commitments that have not yet been distributed. Can you just confirm your comment about no further marks in July would refer to the $ 700 million as well? Thank you very much.
Yeah. On costs. As I was indicating, there is certainly upward pressure coming from intense labor markets, from inflation as well, and that seems to stay longer than expected. From that perspective, we're really looking at all categories at this moment in time. If you look at our cost increases, then we would be running pre-FX, pre everything, around 2.8%. We are working hard to you know moving that down. It will be in the twos, but whether it's exactly the two, you know that's what we're working on. For us, the most important element is the cost-income ratio, which is basically the way you measure the efficiency of your total.
We're confident staying in that. As said, you know, managing costs has different components. We also have, on one side the inflation that pushes up the cost pre-FX, but the other side, we can all recognize that at this moment, FX also has to do with the rate environment, and therefore, FX is not just an FX change, a bit of an FX change, but we do look at FX as well as what helps us managing cost. Sarah, on the MTM? So I didn't know where the 700 was coming from.
Yeah. Basically, we did look carefully at our balance sheet commitments, and both on and off our balance sheets. Effectively, we have come down actually significantly from a year ago in terms of our commitments in the space. Of course, yes, we are considering everything that is committed in the comments that we provide, and in the marks that we have done. Yes.
Okay. Yeah. I just, I guess you say in the quarterly report there's $ 700 million of commitments not yet being distributed, but I guess that captures it. Okay. Thank you very much.
Yeah. That will always be in that business, right? So, I mean, you're in the right, and at a certain moment in time, also at the quarter end, you always have positions that are not fully distributed. As per the end of the quarter, across the three different books that we have indicated, leverage, corporate lending as well as real estate, the $72 million markdown is what we and also the accounts feel is the right representation of the value. And that's where we are. It kind of shows that we have been able to manage that book down and that it is a pretty conservative book. Thank you.
Okay. Thank you very much.
The next question is from Nicolas Payen from Kepler Cheuvreux. Please go ahead.
Yes, good morning. I have two questions, please. Two follow-ups. The first one would be on net inflows in GWM. Just net inflows and leverage tend to evolve in the same way, actually. For Americas and Asia, we see them going in different directions. I wanted to know if there is any particular reason for that. The second question, a bit more prospective. I know that Wealthfront is not yet integrated within UBS, but maybe just a quick qualitative comment on how Wealthfront is doing in such a volatile environment regarding inflows or trading on the more retail side. Thank you.
Yeah. Thank you, Nicolas. I really want to kind of refrain from making comments as to how Wealthfront is doing, because, you know, it's the transaction has not been consummated. So it's not for us to update you on how they are doing. So but I can tell you that, you know, we have prepared everything for this acquisition to be executed. We're waiting for regulatory support, and which is the normal course of business, how you go through regulatory support. So that's one. On the leverage versus the net flows. I honestly think in terms of the U.S., this is just very much driven by the tax flows.
On one side, we see real lending growth a lot in mortgages that has nothing to do with flows, therefore. Our mortgage book grows quite well in the U.S. for ultra-high and high net worth individuals. That's a business that has been growing over the last quarters. That is not necessarily related to your flows. As Sarah already explained, the negative flows in the U.S. are largely explained by a higher than expected outflow related to tax. Thank you.
The next question is from Goel Amit from Barclays. Please go ahead.
Hi. Thank you. I've got some follow-up questions on the NII. The first question is, I think earlier you said that you stand by the previous guidance for NII, for GWM for the remainder of this year. I think Q2 relative to previous guidance was a little bit below. Just to check, that would suggest a bit more for Q3 and Q4 than what you previously thought. Secondly, I just wanted to understand a bit more in terms of, I think previously the guide was for about a 15% sequential growth in NII for GWM. What the difference was in terms of, you know, why it ended up being up 11%, which obviously is still a strong improvement, but what the drivers or difference was there, especially given the comment that model deposit betas were less than anticipated. Thank you.
The guidance was specifically a static balance sheet guidance.
Static balance sheet as per the balance sheet at the end of the first quarter. That's the way the guidance was given.
Okay. The decline in deposit balances drove that difference.
That's right. That's just the way we had given the guidance. After that you can build in your assumptions on a non-static balance sheet, which is reality of life.
Okay. Got you. Is the implied for Q3 for now a bit higher than previously thought? Or is it still based on the balance sheet as of Q1?
Yeah, again, we chose because at some point you get in two, and there is only two quarter, and there is only one quarter. We just decided to stand by the guidance as it was done.
Okay. Thank you.
The next question is from Adam Terelak from Mediobanca. Please go ahead.
Morning. Just a couple of follow-ups from me. On the U.S. tax outflows, you've mentioned it in terms of the net new fee-generating assets in the U.S., but also attached to some of the decrease in deposits. I just wanted to get a bit more color how that $10 billion is split across the two, and why is that coming out of fee-generating assets? Why is it not just deposits being used to pay off tax bills? Just a bit of color there would be great. Then on the buyback, I hear your message on the $5 billion, you're committing to that. Clearly you need to go back into the market for the employee share scheme.
Could you just give us a color of, kind of what sort of volume might be attached to that on top of the $5 billion, and then how we should think about this heading into year end. Clearly, at some point, you're going to go from buying 20% AB every single day to being very much out of the market when you complete that program. Just how to think about managing those volumes through to year end. Thank you.
As you can tell, we are ahead of plan being at $3.7 billion as of last Friday. It's partly early because we know exactly what we have to do. We also are conscious of not leaving things for the last minute. I don't have for you the specific number regarding the employee piece, but what I can tell you is that we consider all of that and that we again reiterate our ability to complete the $5 billion for the full year. I'll ask IR to follow up on that specific number.
Great. Thank you. Just on the buyback, can I confirm is the limiting factor here still just discussing ADTV or are we still kind of $5 billion and we're going to move on to next year before talking again?
I would say it's not about limiting factors. We guided to $5 billion and we will execute $5 billion.
Exactly. We will update the market, you know, as per the end of the fourth quarter. That's where we are.
Right. Very clear. Thank you.
The other question was on the flows, deposits versus net new fee-generating assets and taxes.
Most of our clients have several accounts. We have seen the $10 million of flows. They have come a lot actually from some fund duration mandates. Not to say that they have come only from that, but we have seen that the clients were not just able to do that out of deposits.
Okay. Selling product to pay taxes.
Some, yes.
It's also about tax optimization as to when you sell your portfolio as well in the US. They measure that very specifically, and they basically make the calculations between whether to pay it out of deposits or whether to pay it out of invested assets. That's well optimized.
Great. Thank you.
The next question is from Jeremy Sigee from BNP Exane. Please go ahead.
Hi there. Thank you. Two follow-ups please. I take your point on the NII guidance and the forward curve. You're standing by the existing comment. You don't want to get into two quarter, one quarter. I just wonder if you could give us a sense of what that looks like going into 2023, what you expect the uplift from the forward curve as it currently stands to be in 2023 compared to 2022. That's my first question. The second one is a little bit nitty-gritty. I noticed in Global Wealth Management, the fee-generating asset margin is down 2 basis points quarter-over-quarter. Whereas for the overall business, the gross margin is up a couple of basis points quarter on quarter. Is that just a mix thing to do with the loans are not in there or what? Is there anything to comment on in terms of that decline in the fee generating asset margin Q- on- Q?
We'll probably have to come back to you on that one. Why don't you follow up with the investor relations team on the margin itself, Jeremy. On the other one, we don't guide beyond 2022 on the rate environment, honestly. I think what we can indicate as to how we manage our book, our deposit book, let me put it that way, also in the U.S. This is also to do with our strategy, is that this also again to do with the requirement to reclassify to fair value OCI, which is that, you know, the strategy in the U.S. calls for building a bank next to a wealth manager. If you build a bank, you build a loan book, and you build also a deposit book, not just for funding, but also in our building deposits as a business.
Therefore, the way we go about our deposit pricing is always one where you look at, you know, the commercial opportunity, but also in terms of maximizing the margin and the profitability around it. It is not pure a funding vehicle for us, as it may have been in the past, and therefore and hence also the qualification of the HQLA book against it. It is more and more a strategic book for us, hence the way we price deposits going forward with impact on NII, really looking at the optimal pricing for that, but also the reclassification of the bonds that we hold against it. It's all related.
Thank you.
The next question is from Andrew Lim from Société Générale. Please go ahead.
Hi. Morning. Thanks for taking my questions. Just wanted to revisit the IB performance. It is noticeably weaker than UBS is. I know you say, you know, flow business was strong, but really it was a strong macro quarter, more than anything else, rates and FX. I'm just a bit surprised by the performance in your own FICC business there. I just wanted to know from what you could see if there was some kind of like geographical explanation for that. Weakness maybe in Europe and APAC versus the U.S. that could explain that.
Secondly, just wondering about your thoughts on sizing up your treasury portfolio and investing more in bonds. I mean, we've talked a bit more about, you know, the size of the balance sheet here having a bearing this past quarter and especially on the deposit size. Is that the main limiting factor for increasing your bond investments there, or is there greater flexibility to upsize and increase your net interest income?
Andrew, on the first one, again, I think that the way we look at our markets results versus peers is as follows, and that's why we outperform them in the first quarter. We may lack a bit in the second quarter. There's basically two components to it. The first one is geographical bias, where the U.S. peers are much more biased towards the U.S., and we have a global footprint. That is one. The second one is the exposure to the rates business versus our, the exposure to more equities and structured products business. That generally I mean, those are the two main factors that if you correct for that, we feel that we are more or less in line with how peers have produced.
Headline shows a different factor. Having said that, you know, the 10% revenue increase for Global Markets year-on-year we feel is a good number. Indeed, we have a different setup in our Markets business. As you know, we are aligning our Investment Bank towards what we want to build over time, and therefore, you know, the Markets business specifically in equities is very strategic for us. And we don't build an Investment Bank for being an Investment Bank. We are building an ecosystem for investing in which, you know, Wealth Management, Asset Management, and Investment Banking capabilities are very important in order to grow that. We don't build an Investment Bank for being an Investment Bank.
I think that will then also explain some of the activities that we don't have and then some of our peers do have. In one quarter, that makes us outperform them, and in the other quarter it makes them outperform us if you just look at the Investment Bank. The second question, honestly, Andrew, I didn't quite understand what you were trying to ask. Could you repeat that?
Yeah, sure. In a rising rate environment, I guess it makes sense to see whether you can upsize bond investments and increase your net interest income, especially, you know, given your move to classify some of those bond investments at amortized cost. This quarter we've seen maybe, you know, the balance sheet shrinkage, and loss of deposits as a limiting factor there. I mean, how do you see that going forward, actually, your opportunity to increase bond investments? Is that purely limited by deposits or do you have more flex there to increase it?
The way you can think about it is, we have the deposits that we have coming from our customers, we have on the offset some of the loans that we have coming from our customers. Then, the net of the two would be a securities portfolio. We do everything with a view to managing the assets and liabilities through replication and making sure that we get to the appropriate duration to manage the risks. There is no particular limit in terms of like how big the investment portfolio can be. I would say theoretically, but for us, what's important is that we wouldn't take an exposed yield-duration risk. What we want to have is a matched funding that reflects the quality of the deposits that we have and the duration of the loan books that we have.
Okay. That's great. Thank you.
The next question is from Alastair Ryan from Bank of America. Please go ahead.
Thank you, and good morning. Fee-generating assets come into Q3, down 12% on where they came into Q2, invested assets down 11%. Is there anything that would offset that as a headwind for your fees, which are obviously double your net interest income in wealth management? Second, please, the cost-income ratio in Q2 was well over your 70%-73%, excluding the various one-offs in revenues and costs. Were you putting some money aside for future quarters or to get back into the 70%-73% you need the revenues to snap back up or step up in the cost program? Thank you.
Again, when we did the underlying for the first half, we were actually quite close to the reported, because they are items that go in both directions. We'd want to make sure that we review the math that you're doing with you on that one too, and because we're not seeing the issues that you're describing.
Ryan, basically we report as we report, and the cost-income is on reported numbers, right? It's good that you also look at the underlying because that is also important for us. I mean, we make that analysis as well as to so how can we further improve our cost-income ratio on the underlying. You know that the targets are on a reported basis.
Okay. Thank you. On the invested assets?
Well, they reflect t he market that has gone down. We of course have done better than the market because we have added other cumulative flows into that.
Thank you.
Okay. If there's no more questions, then I'll close this call. Thank you for calling in this morning. I think to sum it all up, as you can see from our numbers, this was for our clients a challenging quarter, where our private clients were sidelining their investments, waiting for guidance and also for advice. Whereas our institutional clients have really been very active, and that's what you see through the numbers. We have progress in our strategy if it comes to putting the company closer together, launching digital initiatives, working on technology in order to further improve efficiencies as well, keeping costs under control. That leading to, in our view, a very strong or a good underlying performance, let me put it that way, in the Swiss business, in the markets business, and in the wealth business. With that, you know, thank you again for calling in, and I wish you a great day. Thank you.
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